In Australia, the public’s pain has become Treasury’s gain.
Higher inflation and commodity prices are padding the budget, but households are paying the price.
Surging inflation and commodity prices are boosting revenues, while reforms to the National Disability Insurance Scheme will deliver mammoth savings over the long-term projections. That combination has significantly strengthened the underlying cash balance position. All in all, Australia’s budget position is on track to be around $11.4bn better off this financial year, and another $15bn in 2026-27. Across the four years to 2028-29, the budget savings will top $71bn, taking roughly the same out of net debt.
Revisions to capital gains tax, and possibly negative gearing, have also been flagged. Depending on how these tax reforms are structured, they could see savings of up to $9.4bn and $8.4bn, respectively, to the underlying balance over the forward estimates.
While the budget position is healthier, the economy is getting sicker. Higher oil prices are colliding with Australia’s already resurgent inflation, with headline inflation jumping to a three-year high in March. The Reserve Bank of Australia has delivered three cash rate hikes in response, with further tightening a very real possibility.
Much of the economic and budget outlook hinges on the Middle East conflict. To quantify this uncertainty, we have modelled the impacts of a range of scenarios on the Australian economy and budget.
